Hello. Welcome to CantosCharts Masterclass. I'm Sandy Jadeja, Chief Market Strategist at CMS FX.

Welcome back to another lesson in technical analysis. We've been continuing our series of learning how to trade with the financial markets. And of course as always, everything is for education purposes only. If you are new to trading, do please consult a financial advisor.

Today we're going to continue our moving average programme. And we're going to be looking at a slightly different way of using moving averages. And as I said before, the moving average can be used with many different settings, as well as alternative applications. And that's what we're going to be doing today.

Have a look at this particular chart over here. What do we see? What is the most obvious thing that stands out? Two things. First of all, we can see that we have a channel. And the second thing is we can see that the upper channel is coloured in blue and the lower channel in red.

So what can we do with this type of application? Because this gets very interesting. In the previous lesson, I discussed how we can use moving averages on their own, as well as dual and triple moving averages. But this is an alternative way of looking at moving averages. What we're going to do is look at using bands, or channels, in order to enter and exit markets.

Here, what we've done is overlaid the actual market. So what we can see first of all, we have a red arrow indicator just on this side over here, followed by a blue arrow, followed by a red arrow, a blue arrow, red, blue and then red. Now, I'll go through these, highlighting what's actually happening here.

On the first red arrow, we actually saw the market close below the channel. So in other words the market closed on the downside of this particular channel here. We would enter a short position right here. We stayed in this position until this point here where we've got a blue arrow. That would indicate that we can actually exit the market. And in fact we can even go long here if desired.

But actually the market failed at that point there and came down. We had a red arrow. That would indicate either an exit or a short signal, followed by a blue arrow. And that would indicate a long signal.

So if we take this into context, we went short here. We took a long position and lost on that one. We took a short position here, lost on that one. We now have a long position, followed by another loss, and a short position followed by a loss, a long position followed by a very good gain here.

Straight away we can see that we've actually had quite a few losses. But once the market gets its way, in terms of a trend, like this one here and this one here, they generally negate the losses. So this type of trading is really useful if you're looking for longer-term trends.

This is just a zoomed in version of that particular chart of the last trade. So for example, here we had a long position, followed by an exit. So we entered long at 8,017. Close it out at 8,146. So that's a nice trade there.

Then we had a long trade over here at 8,743 to 10,172. That's an excellent trade.

So the result on this particular one here is we had an entry at 8,017 for long, an exit at 8,146 for a profit of 129 points. Then an entry at 8,743 for long and an exit at 10,172 for 1,429 points.

That's superb but why would we not have taken short positions? Well, I'll explain that in another slide. But over here, take a look again at the longer term trend. This is the weekly chart of crude oil. We had an entry at 7,335 right up to 12,384. That's a nice, long-term trend. Notice that there was no exit signals all along the way. This trend lasted for several weeks.

Then we had a nice down move from 120 to 84, right up to 6,112. So the result on this one here, we had a $50.49 profit. And then the short position would have generated a $62.72 profit.

Now, let's zoom in back onto that first chart with the Dow Jones and notice how there are multiple signals here.

What we would have done is to look at the weekly chart for the overall direction, but we would have used the daily chart to enter our positions for long and short.

So again, there are multiple signals here. We would ignore every single sell signal here based on the weekly charts. In other words, if the weekly chart had given us a buy signal, we would enter all the buy signals on the daily chart and ignore all the sell signals on the daily chart.

If we had a sell signal on the weekly chart, we would only take short positions, as indicated right now in the current market move.

So, determine your timeframe. Are you going to be trading the longer term or the shorter term? If you're going to be trading longer term, it might be useful to look at the monthly and the weekly chart. Intermediate to the shorter term, you'd be looking at your weekly to your daily chart.

Then choose a suitable time period for the moving average. And how we would do this is we will take the moving average of the high and the moving average of the low. In the example that I showed you, I used the period of 10. If you're a very short-term trader, you might want to use a five-period. And if you're a much longer-term trader, you might want to consider using the 20-period moving average. And, of course, play around and adjust this to your own suitable trading strategy.

Then what is a dominant trend? Is it higher or lower on the longer-term timeframe? And then, of course, only take signals within the major trend on the shorter-term timeframe.

Always use stop loss orders because we never know when the market could take a sharp turn.

In the next session, I'm going to be talking about trading with a parabolic SAR. In the meantime, have a great trading week. I'm Sandy Jadeja.